Today I am considering the investment case for three recent Footsie risers.
Platinum bomb
Precious metals digger Lonmin (LSE: LMI) saw its shares surge again last week, with bubbly market appetite coming despite another plunge in platinum prices.
The dual-role metal — it’s used both as an investment metal as well as a key component in various industries and the jewellery market — slipped back towards the critical $1,000 per ounce marker as the US dollar strengthened.
Recent Federal Reserve comments suggesting that interest rates could be back on the agenda has propelled the greenback higher, and I believe additional strength may materialise in the months ahead, applying fresh pressure to the metal. And of course fears over the health of the Chinese economy may cause further problems for platinum values.
Lonmin rose last week after announcing strong progress in its cost-cutting mission, a programme that helped it record a $21m pre-tax loss during October-March. This marked a vast improvement from the $118m loss clocked up in the same period last year.
However, the number crunchers expect Lonmin to remain in the red in 2016, with losses of 9 US cents per share currently pencilled in.
And with the digger still facing a murky revenues outlook, I reckon investors hoping for a bottom-line bounceback may end sorely disappointed. I believe Lonmin’s surging share price provides a terrific selling opportunity.
Building beauty
I am far more optimistic concerning the profits prospects of Bovis Homes (LSE: BVS), however.
The housebuilder has gained significant traction since its AGM earlier this month, its share price taking in four-and-a-half-month peaks just shy of £10 in the process. And this comes as little surprise, at least in my opinion. Bovis announced at the meeting that
“housing market conditions remain positive with strong demand from home buyers who are benefitting from good access to mortgage finance.”
With construction activity still failing to meet this brilliant demand, the City expects Bovis to keep chalking up stellar earnings rises — indeed, a 16% earnings rise is projected for this year alone, resulting in a mega-low P/E rating of 8.9 times.
And with the business boasting a market-mashing yield of 4.6% for 2016, I reckon there is plenty of room for Bovis’s stock value to keep sprinting.
Coffee colossus
Bed and beverage play Whitbread (LSE: WTB) also touched levels not seen since the start of 2016 last week, keeping its spritely performance in May going.
Investors are becoming bullish sales continue to surge across the group. Whitbread saw revenues canter 12% higher in the 12 months to February 2016, with sales at its Costa coffee chain rising 15.9% and takings at Premier Inn increasing 12.9%. And I expect revenues to keep rising as Whitbread expands these brands across the globe.
This view is shared by the abacus bashers, and an earnings expansion of 4% is pencilled in for 2017 alone. A consequent P/E rating of 17.3 times for may be slightly toppy on paper, but I believe this represents fair value when you factor in the electric growth potential thrown up by Whitbread’s ambitious expansion programme.